Author(s)

Yuming Xiong

Corresponding Author

Yuming Xiong

ABSTRACT

For global imbalances, scholars at home and abroad have given many explanations. Traditionally, they include double deficit theory, undervaluation of effective exchange rate theory, savings-investment gap theory, demographic structure theory and so on. In recent years, studies have focused on the rationality of developing countries' sustained surpluses and developed countries' deficits from the perspectives of financial development differences, international division of labor and even trade liberalization. The theory of financial development differences and international division of labor has been proved theoretically and empirically, while the newly proposed theory of trade liberalization still lacks empirical support. Using the index of trade freedom, this paper makes a fixed-effect regression on the cross-border panel data from 1995 to 2017 and finds that the empirical evidence does not support the theory of trade liberalization. In fact, we believe that trade liberalization will worsen a country's current account.

KEYWORDS

Current account, global imbalance trade liberalization